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2006 (3) TMI 231 - AT - Income TaxInitiation of proceedings u/s 147 - Reason To Believe - deemed income - MAT - disallowance of depreciation - findings and directions made by the learned CIT(A) - Levy of interest under ss. 234B and 234C, 234D - HELD THAT - Assessee has disputed the AO's 'reasons to believe' on merits of the case as made out by the learned AO in the reasons recorded by him. To accept these arguments of the learned counsel would amount to holding that if assessment of an income in the assessment order u/s 147 fails, such failure would invalidate the reasons as recorded by the AO. To put it differently the case of the assessee before us is that the AO should not only entertain belief that assessee's income chargeable to tax has escaped assessment, his reasons for such belief should stand the test of ultimate appeal as well. In our humble opinion, that is not the correct legal position. At the stage of issue of notice u/s 148 the AO only initiates the proceedings for assessment and he does not make any assessment at all. After having recorded the reasons the hands of the AO are not tied and he has a discretion to examine the explanation of the assessee on merits and if convinced, not to assess the amount that he believed at the time of initiation of assessment proceedings as having been escaped assessment. To hold otherwise would render proceedings after service of notice u/s 148 on the assessee to be an empty formality. It is not the case of the assessee that the inferences drawn by the AO are not based on facts and circumstances of the case. The assessee has also not been able to show that the reasons recorded by the learned AO are mere pretence and the view taken by him is such that no person reasonably instructed in law would take. On the contrary, we found animated debate on the contentions of the learned AO during the course of proceedings before us. We, therefore, hold that reasons to believe as recorded by the learned AO meet the requirements of provisions of s. 147. We, therefore, reject assessee's ground of appeal disputing initiation of proceedings u/s 147. Disallowance of depreciation on turbines - According to the learned counsel for the assessee the return of income filed before the due date of furnishing the return u/s 139(1) for AY 1999-2000, made proper compliance to the requirements of the second proviso to r. 5(1A) of IT Rules. On consideration of the matter we accept this argument. As noticed earlier the provisions of IT Rules, 1962 have not laid down any particular procedure for exercise of option by the assessee. That being so the assessee could find the occasion to exercise his option while filing the return of income for AY 1999-2000. We do not appreciate the logic of the contention of the learned counsel CIT(A) that even after having claimed depreciation under the general provisions of Appen. I, the assessee had not exercised his option as contemplated in the second proviso. We, therefore, allow assessee's ground of appeal No. 2 and direct the learned AO to allow the assessee depreciation as admissible to the assessee under sub-r. (1) of r. 5 r/w Appen. I. MAT - It is not the case of the AO that the assessee's P L a/c has not been prepared in accordance with the provisions of Parts II and ill of Sch. VI to the Companies Act, 1956. We hold that for the purpose of adjustment as provided in Expln. (iv) to s. 115JA, the AO cannot substitute the amount of profit derived by an industrial undertaking from the business of generation or generation and distribution of power as certified by the auditors of the company to be in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. We, therefore, delete the addition made by the AO while computing the assessee's income chargeable to tax u/s 115JA in this behalf and restore the working of the assessee in relation to Expln. (iv) to s. 115JA. Findings and directions made by the learned CIT(A) - In our opinion, it amounts to circumvent the effect of a binding judgment of jurisdictional High Court that cannot be permitted. To put it simply an assessment order or any of its part is either legally tenable or not legally tenable, it cannot be both. We, therefore, hold that the impugned order of the learned CIT(A) in this respect is self-contradictory. According to the learned CIT(A), following the judgment of the jurisdictional High Court in the case of Vipan Khanna 2000 (7) TMI 2 - PUNJAB AND HARYANA HIGH COURT , proceedings u/s 147 as initiated by the AO, could not be misused for making roving and fishing enquiries so as to explore further items of income having escaped assessment. He, therefore, deletes the additions in due deference to the judicial pronouncement of the jurisdictional High Court. How can the learned CIT(A) then issue any finding or direction to the AO to initiate proceedings u/s afresh for assessment of those very additions. In other words, according to the learned CIT(A) while the proceedings u/s 147 cannot be misused for the purpose of making fishing and roving enquiries, nonetheless proceedings u/s 147 can be misused for making fishing and roving enquiries for the purpose of initiating proceedings u/s 147 next time. To say the least, we cannot appreciate such convoluted logic of the learned CIT(A). We, therefore, allow the assessee's ground of appeal No. 4 and hold that the impugned order of the learned CIT(A) contains no finding or directions within the meaning of s. 150 in respect of the disputed additions in question. Levy of interest under ss. 234B and 234C - In the case of CIT vs. B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME COURT , Hon'ble Supreme Court have held that preponderance of judicial opinion should be respected. We, therefore, decide this ground of appeal in favour of Revenue and against the assessee. Levy of interest u/s 234D - On consideration of the matter we do not see merit in the main contention of the assessee but we agree with the alternate contention of the assessee. Levy of interest to be computed with reference to period of time has to come into force immediately and it cannot be bound to any particular assessment year. At the same time it would be wholly unreasonable to charge interest for the period when the provisions of s. 234D were not on the statute book. We, therefore, allow the assessee's ground of appeal No. 12 partially and direct the AO to compute interest chargeable u/s 234D, if any, w.e.f. 1st June, 2003. In the result, this appeal is partly allowed.
Issues Involved:
1. Initiation of proceedings under section 147. 2. Disallowance of depreciation on turbines. 3. Reduction under clause (iv) of Explanation to section 115JA. 4. Findings and directions under section 150. 5. Merits of various additions and disallowances. 6. Levy of interest under sections 234B and 234C. 7. Levy of interest under section 234D. Detailed Analysis: 1. Initiation of Proceedings under Section 147: The appeal challenges the initiation of proceedings under section 147 based on the reasons recorded by the Assessing Officer (AO). The AO believed that income had escaped assessment due to the assessee's failure to declare all material facts. The reasons involved excessive depreciation claimed and inflated profits from power generation. The Tribunal held that the reasons recorded by the AO were sufficient and based on material facts, thus justifying the initiation of proceedings under section 147. 2. Disallowance of Depreciation on Turbines: The AO disallowed depreciation on turbines on the basis that it should be computed on a straight-line method. The assessee argued that it had opted for the written down value (WDV) method as per Rule 5(1A). The Tribunal found that the assessee had exercised its option correctly while filing the return for the assessment year 1999-2000. Therefore, the Tribunal directed the AO to allow depreciation as claimed by the assessee under the WDV method. 3. Reduction under Clause (iv) of Explanation to Section 115JA: The AO reduced the profits derived from power generation, arguing that the transfer pricing for captive consumption was inflated. The Tribunal held that under section 115JA, the AO cannot substitute the profit derived from power generation as recorded in the books of accounts, which were in accordance with the Companies Act. The Tribunal deleted the AO's adjustment and restored the profit as recorded by the assessee. 4. Findings and Directions under Section 150: The CIT(A) issued findings and directions for the AO to initiate fresh proceedings under section 147 irrespective of the time limits. The Tribunal found this action contradictory, as the CIT(A) had deleted the additions based on the judgment in Vipan Khanna vs. CIT. The Tribunal held that the CIT(A) could not issue directions for fresh proceedings under section 147 for the same additions. Therefore, the Tribunal allowed the assessee's ground, holding that the CIT(A)'s directions were invalid. 5. Merits of Various Additions and Disallowances: The CIT(A) had independently examined and decided on the merits of various additions and disallowances, although he deleted them based on legal principles. The Tribunal did not adjudicate on these grounds, considering them academic since the deletions were already final. 6. Levy of Interest under Sections 234B and 234C: The assessee argued that sections 234B and 234C do not apply to tax liability under section 115JA. The Tribunal noted that judicial opinion predominantly supports the Revenue's position that interest under these sections is applicable. Therefore, the Tribunal decided this ground in favor of the Revenue. 7. Levy of Interest under Section 234D: The assessee contended that section 234D, inserted by the Finance Act, 2003, could not apply to the assessment year 2000-01. The Tribunal agreed that while section 234D could be applied, interest should only be charged from 1st June 2003, the date of insertion of the provision. Thus, the Tribunal allowed the assessee's ground partially. Conclusion: The Tribunal partly allowed the appeal, upholding the initiation of proceedings under section 147 and disallowing depreciation on turbines. It rejected the AO's reduction of profits under section 115JA, invalidated the CIT(A)'s directions under section 150, and confirmed the applicability of interest under sections 234B and 234C. Interest under section 234D was allowed only from 1st June 2003.
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